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Rural Electrification Corp India Plans to Launch $1 Billion Overseas Convertible Bond Issue

According to reports, Rural Electrification Corp. plans to raise $1 billion in the next three months by selling five-year convertible bonds abroad, a senior executive said, as the Indian lender tries to improve interest margin by reducing its cost of funds.

The state-run company is also in talks with German bank KfW Bankengruppe to raise a term loan of EUR100 million for funding renewable energy projects in India, Finance director Hari Das Khunteta said recently.

Rural Electrification is among many companies that are looking to raise funds abroad as borrowing in India has become expensive with the central bank raising its policy lending rate 13 times in two years.

The power sector is particularly fund scarce as commercial banks are reluctant to lend due to the difficulties the sector is facing in securing fuel supplies and in land acquisition. This situation is driving companies to specialized lenders like Rural Electrification.

The planned overseas convertible bonds will be the first such debt instrument by the lender, Mr. Khunteta said.

The issue would reduce the government’s stake in the company to about 57% from 66.80%, if those who purchase the bonds decide to convert them into shares.

The bond issue will require the government’s approval.

“We are hopeful of getting cabinet approval for the bond issue in April and raising the funds by June,” Mr. Khunteta said.

The coupon rate for the bond hasn’t been fixed yet, he said.

Mr. Khunteta said the company has recently raised $150 million in yen-denominated loans from Sumitomo Mitsui Banking Corp., Bank of Tokyo-Mitsubishi UFJ and Mizo Bank.

He said it has also signed deals with some overseas banks to arrange another $75 million in yen-denominated loans.

Rural Electrification has outstanding overseas debt of more than $2.5 billion, of which about $600 million is unhedged.

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